Technology updates: $1.5 million/year (Year 4 onwards) 3. Overhauls: Equipment repairs: $18 million (Year 10) Facility upgrades: $25 million (Year 15) 4. Revenue: From Year 3 to 10: Starting at $60 million and increasing by $5 million annually. From Year 11 onward: Stabilizing at $100 million annually. Salvage Value of existing equipment: $25 million (Year 20) Option B: Upgrading Existing Infrastructure 1. One-Time Costs: • Renovations: $35 million (Year 0) Medical equipment: $20 million (Year 0) Licensing & consulting: $5 million (Year 0) Initial marketing campaign: $2 million (Year 1) 2. Annual Values: Operations & additional staff: $7 million/year (Year 2 onwards) Maintenance: $2 million/year (Year 2 onwards) Technology updates: $1.2 million/year (Year 3 onwards) 3. Overhauls: Equipment repairs: $13 million (Year 10) Facility upgrades: $20 million (Year 15) 4. Revenue: From Year 2 to 9: Starting at $18 million and increasing by $5 million annually. From Year 10 onward: Stabilizing at $58 million annually. Salvage Value: $15 million (Year 20) The community of Rivertown has a single public hospital, Rivertown General, which has been serving its residents for over 50 years. With the advancements in medical technology and the growing population, the hospital's current facilities and equipment are becoming outdated, causing patients to seek medical care in neighboring cities. In response to this, the hospital board has proposed the construction of a new wing, dedicated to state-of-the-art surgical facilities and patient rooms. Rivertown General Hospital is considering two primary options: Option A: Build a brand-new wing dedicated primarily to surgeries, including state-of-the-art operation theaters, recovery rooms, and necessary facilities. This would cater to a larger patient demographic and potentially draw patients from neighboring towns, making the hospital a regional healthcare hub. Option B: Upgrade the existing infrastructure, which includes renovating some parts of the current structure and purchasing new medical equipment. This approach is less disruptive to current operations but may not cater to the growing population in the long run. The estimated costs and benefits associated with each project are (for the next 20 years): Option A: Building a New Wing 1. One-Time Costs: Land & site preparation: $10 million (Year 0) Construction: $100 million ($50 million in Year 0 and $50 million in Year 1) Medical equipment: $25 million (Year 0) Licensing and consulting: $15 million (spread across Years 0 and 1) Initial marketing campaign: $5 million (Year 2) 2. Annual Values: Operations & staff: $11 million/year (Year 2 onwards) Maintenance: $2.5 million/year (Year 2 onwards)

Technology updates: $1.5 million/year (Year 4 onwards) 3. Overhauls: Equipment repairs: $18 million (Year 10) Facility upgrades: $25 million (Year 15) 4. Revenue: From Year 3 to 10: Starting at $60 million and increasing by $5 million annually. From Year 11 onward: Stabilizing at $100 million annually. Salvage Value of existing equipment: $25 million (Year 20) Option B: Upgrading Existing Infrastructure 1. One-Time Costs: • Renovations: $35 million (Year 0) Medical equipment: $20 million (Year 0) Licensing & consulting: $5 million (Year 0) Initial marketing campaign: $2 million (Year 1) 2. Annual Values: Operations & additional staff: $7 million/year (Year 2 onwards) Maintenance: $2 million/year (Year 2 onwards) Technology updates: $1.2 million/year (Year 3 onwards) 3. Overhauls: Equipment repairs: $13 million (Year 10) Facility upgrades: $20 million (Year 15) 4. Revenue: From Year 2 to 9: Starting at $18 million and increasing by $5 million annually. From Year 10 onward: Stabilizing at $58 million annually. Salvage Value: $15 million (Year 20) The community of Rivertown has a single public hospital, Rivertown General, which has been serving its residents for over 50 years. With the advancements in medical technology and the growing population, the hospital's current facilities and equipment are becoming outdated, causing patients to seek medical care in neighboring cities. In response to this, the hospital board has proposed the construction of a new wing, dedicated to state-of-the-art surgical facilities and patient rooms. Rivertown General Hospital is considering two primary options: Option A: Build a brand-new wing dedicated primarily to surgeries, including state-of-the-art operation theaters, recovery rooms, and necessary facilities. This would cater to a larger patient demographic and potentially draw patients from neighboring towns, making the hospital a regional healthcare hub. Option B: Upgrade the existing infrastructure, which includes renovating some parts of the current structure and purchasing new medical equipment. This approach is less disruptive to current operations but may not cater to the growing population in the long run. The estimated costs and benefits associated with each project are (for the next 20 years): Option A: Building a New Wing 1. One-Time Costs: Land & site preparation: $10 million (Year 0) Construction: $100 million ($50 million in Year 0 and $50 million in Year 1) Medical equipment: $25 million (Year 0) Licensing and consulting: $15 million (spread across Years 0 and 1) Initial marketing campaign: $5 million (Year 2) 2. Annual Values: Operations & staff: $11 million/year (Year 2 onwards) Maintenance: $2.5 million/year (Year 2 onwards)

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter7: Consumer Choice And Elasticity

Section: Chapter Questions

Problem 8CQ

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Related questions

Question

Draw the Cash Flow Diagram Associated with Each option

Technology updates: $1.5 million/year (Year 4 onwards)
3. Overhauls:
Equipment repairs: $18 million (Year 10)
Facility upgrades: $25 million (Year 15)
4. Revenue:
From Year 3 to 10: Starting at $60 million and increasing by $5 million annually.
From Year 11 onward: Stabilizing at $100 million annually.
Salvage Value of existing equipment: $25 million (Year 20)
Option B: Upgrading Existing Infrastructure
1. One-Time Costs:
• Renovations: $35 million (Year 0)
Medical equipment: $20 million (Year 0)
Licensing & consulting: $5 million (Year 0)
Initial marketing campaign: $2 million (Year 1)
2. Annual Values:
Operations & additional staff: $7 million/year (Year 2 onwards)
Maintenance: $2 million/year (Year 2 onwards)
Technology updates: $1.2 million/year (Year 3 onwards)
3. Overhauls:
Equipment repairs: $13 million (Year 10)
Facility upgrades: $20 million (Year 15)
4. Revenue:
From Year 2 to 9: Starting at $18 million and increasing by $5 million annually.
From Year 10 onward: Stabilizing at $58 million annually.
Salvage Value: $15 million (Year 20)

Transcribed Image Text:The community of Rivertown has a single public hospital, Rivertown General, which has been serving its residents for over 50 years. With the advancements in medical technology and the growing population, the hospital's current facilities and equipment are becoming outdated, causing patients to seek medical care in neighboring cities. In response to this, the hospital board has proposed the construction of a new wing, dedicated to state-of-the-art surgical facilities and patient rooms. Rivertown General Hospital is considering two primary options: Option A: Build a brand-new wing dedicated primarily to surgeries, including state-of-the-art operation theaters, recovery rooms, and necessary facilities. This would cater to a larger patient demographic and potentially draw patients from neighboring towns, making the hospital a regional healthcare hub. Option B: Upgrade the existing infrastructure, which includes renovating some parts of the current structure and purchasing new medical equipment. This approach is less disruptive to current operations but may not cater to the growing population in the long run. The estimated costs and benefits associated with each project are (for the next 20 years): Option A: Building a New Wing 1. One-Time Costs: Land & site preparation: $10 million (Year 0) Construction: $100 million ($50 million in Year 0 and $50 million in Year 1) Medical equipment: $25 million (Year 0) Licensing and consulting: $15 million (spread across Years 0 and 1) Initial marketing campaign: $5 million (Year 2) 2. Annual Values: Operations & staff: $11 million/year (Year 2 onwards) Maintenance: $2.5 million/year (Year 2 onwards)

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